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UBS announces 2nd Qtr loss and separation of business units |
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12 August 2008. UBS today announced a second quarter loss of CHF 358 million and plan to separate its business into three distinctive autonomous units. (see press release below) At its investor presentation, UBS stated that it had no intention to sell any of its businesses but many analysts present believe that the move would make any disposal far easier to achieve. The Chairman indicated that the Group had received approaches but stated that none of them were at a price that they would even remotely consider. UBS said there had been net new money outflows of almost CHF 44 billion in the second quarter, compared with inflows of CHF 34 billion a year earlier. It also confirmed a further US$5 billion in writedowns on investments. This took its total cost from the markets crisis to US$42 billion.
UBS announces repositioning of the Bank to allow maximum strategic flexibility in its future developmentUBS will separate its business divisions into three autonomous units and vest them with increased operational authority and accountability. Cross-divisional collaboration will be promoted and driven to yield the maximum possible revenue generation for the firm, within a clear framework of servicing, revenue sharing and referral arrangements at market terms. UBS will align incentives for management and staff of each autonomous business division directly with its financial results. This will promote profit generation within an appropriate and rigorous risk framework that fully recognizes the risk/reward profile of different activities. UBS will continue to invest in and develop its global wealth management business, its core asset, with the aim of strengthening both its presence in international growth markets and its leading position in Switzerland. The new structure will result in more transparency on the sources of value creation within UBS, impose strict standards on the availability and usage of capital, reward management for sustainable value creation, and will provide maximum strategic flexibility to capture shareholder value in the future. The UBS brand will continue to be used by all its divisions.
Following a detailed review of its strategy by the UBS Board of Directors and the Group CEO, UBS today announces changes to its strategic direction and launches a comprehensive program to re-engineer its business. This move is intended to capitalize on and further grow the value of its leading client franchises across its three businesses, create a platform for sustained profitability for each, and maximize value for the Group as a whole.
UBS will now operate as a Group with autonomous business divisions. This move will make UBS more effective and agile in managing trends in the financial industry – including the uncertain near-term outlook for global financial markets and potential changes in regulatory capital requirements. The new business model will enhance the incentive for each business division to be successful on its own merits, without relying on capital and funding rate cross-subsidies from the other businesses.
"Our review has clearly revealed the weaknesses associated with the integrated “one firm” business model. Some of these weaknesses – such as the blurring of the true risk-reward-profile of individual businesses – are the source of substantial risk, as we have seen in the past few months. Others have led to the creation of excessively elaborate processes and unnecessary layers of complexity. The new structure will create a spirit of transformation, clear accountability and transparency, and will allow us to optimize funding and capital usage. This repositioning of the Bank will create maximum strategic flexibility to capture the best possible opportunities for shareholder value creation in the future," said Peter Kurer, Chairman of UBS.
"A lot has already been achieved in the repositioning of the Investment Bank. We have substantially reduced our risk exposures, balance sheet, costs and personnel, made changes in our group governance model and initiated remediation measures. I am determined to make the management of UBS more effective. These fundamental changes to the way we run our businesses will now increase the effectiveness of our management structure and processes, and of the way our businesses interact," said Marcel Rohner, CEO of UBS. Executive management
The executive management of the Group will be led by the CEO who will be supported by the Group Executive Board (GEB) and its newly established Executive Committee.
The full GEB will focus on group-wide interests and will, in particular, manage shared services and group leadership development, grow cross-divisional revenues, oversee regional governance, and review proposed changes to the business portfolio. The Executive Committee, which consists of the CEO, the CFO, the CRO (Chief Risk Officer) and the General Counsel, will decide on the resource allocation of the Group. It will set and monitor the performance targets for the business divisions, risk parameters, capital allocation and funding terms.
Divisional CEOs will be tasked with leading their business in a much more autonomous manner, accountable for dedicated capital resources, people and infrastructure. Regional CEOs will drive cross-divisional collaboration to generate value for UBS's shareholders and will assume group-wide regional regulatory responsibility. Corporate Center will be responsible for providing state-of-the-art group level control in the areas of finance, risk, legal and compliance, and significant attention will be devoted to strengthening and empowering these functions throughout the firm. Strategic priorities
UBS will continue to develop the platform and reach of Global Wealth Management & Business Banking. This includes the expansion of its global presence in international wealth management growth markets. UBS's leading position in Switzerland, both as a wealth manager and as the largest retail bank, will remain a cornerstone of the strategy and of sustainable profit growth.
The Investment Bank will continue its repositioning towards client-driven growth, combined with a further reduction of its balance sheet and risk positions. This will allow the Investment Bank to build on its global coverage and distribution capability and to ensure maximum accountability for creation of shareholder value. Each business line – equities, investment banking and fixed income, currencies and commodities – will be measured by individual return on capital targets. A new compensation plan will balance risk and reward.
In the Global Asset Management division, independence of management as well as investment decision-making and investment performance are critical to compete successfully. Incentives for leadership and staff will be aligned with the results and investment performance of the business. Change program
The change of UBS's business model will be achieved with a centrally managed change program, covering structural, legal and financial aspects of the transformation.
The seven streams of this program, which will start immediately, are: Revised incentive systems to reward divisional management and staff for shareholder value creation in their own business division (during fourth quarter 2008) Further enhancements to the funding framework so that the costs and structure of liabilities of each business division approximate those of stand-alone competitors (end 2009) Adjustments to the executive governance structure to reflect the above changes (by end third quarter 2008) Development of targets and performance indicators consistent with the repositioning of the business divisions (end 2008) Reduction of the size and scope of the Corporate Center, in line with the re-allocation of process ownership to the divisions Review of intra-divisional servicing, revenue sharing and referral arrangements (mid 2009) Continuation of the strategic cost reduction program targeted at increasing the efficiency of the Group.
UBS expects the change program to be completed by the end of 2009.
Peter Kurer, Chairman of UBS, said: "We are satisfied that we have found the right strategic framework for the management and development of our businesses. This repositioning will allow UBS to move quickly in seizing opportunities to strengthen each business – through collaborations, joint ventures or other forms of combination – as financial markets recover to normality with the objective of delivering the highest possible value to shareholders while preserving the core asset of UBS, its global wealth management business".
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UBS AG provides a range of financial services, including advisory services, underwriting, financing, market making, asset management, brokerage and retail banking on a global level. At 31 December 2006, UBS has over 175,000 individuals registered as Shareholders.
Latest News
27 November 2008, Lucerne, Switzerland In Lucerne, 2,395 shareholders of UBS AG attended the extraordinary general meeting held to vote on the proposed capital raising. Shareholders, generally supportive of the Chairman, Peter Kurer, still wanted the bank to pursue legal action against former executives even though a number of these executives have returned or rejected CHF 70 million in remuneration. Shareholders demanded details of payments made over the previous five years to the senior executives. They also demanded that the bank recover payments from the non-Swiss executives who have left the banks, referring to Hew Jenkins, the former head of the investment... Readmore | UBS has proposed a new compensation plan for its employees which will include an advisory vote on compensation by shareholders at each Annual General Meeting. It is also looking at legal remedies with regard to claiming back bonuses of executives who have left the company. In addition, it has established a working group to press for voluntary repayment of bonuses given to these executives. Readmore | k possResults were impacted by realized and unrealized losses of USD 4.4 billion on legacy risk positions, mainly on exposures related to US residential real estate-related securities and other credit positionsUBS continued to reduce exposures to risk positions throughout the quarter, largely through sales and to a lesser extent further writedowns. Exposures to US residential real estate-related positions were reduced by almost 50% by quarter end The transaction with the Swiss National Bank (SNB) announced on 16 October 2008 will result in a dramatic decrease of UBS's risk positionsTransaction with the Swiss National BankAs announced on 16 October 2008, the... Readmore | The Swiss government has provided UBS with SFr6bn injection of fresh capital through the purchase of a mandatory convertible note. In addition, the Swiss National Bank and UBS have reached an agreement which will enable UBS to offload transfer $60bn of illiquid assets into a separate fund entity to be controlled by the SNB. Readmore | 12 August 2008. UBS today announced a second quarter loss of CHF 358 million and plan to separate its business into three distinctive autonomous units. (see press release below)At its investor presentation, UBS stated that it had no intention to sell any of its businesses but many analysts present believe that the move would make any disposal far easier to achieve. The Chairman indicated that the Group had received approaches but stated that none of them were at a price that they would even remotely consider.UBS said there had been net new money outflows of almost CHF 44 billion in... Readmore | | Show options |
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Recent Events
1st Quaret 2008 Expected Net Loss of CHF 12 billion UBS has pe-announced its first quarter 2008 results stating that it expects a net loss of CHF 12 billion mainly due to US$ 19 billion of write-downs on its US real estate and related structured credit positions. This brings the total write-downs (2007 to first quarter 2008) to US$ 37 billion. The announcement also stated that it has undertaken a rights issue of CHF 15 billion (fully underwritten) in addition to the already agreed CHF 13 billion capital raising. The announcement also stated that the current Chairman, Marcel Ospel, will not stand for re-election at the 2008 Annual General meeting. The Board proposed the appointment of Peter Kurer as Ospel's successor. The Board stated that the appointment was part of an extensive process, which was already underway, whereby the Board is reviewing the root causes of and lessons learned from its subprime losses. In particular, the Board is thoroughly examining governance, strategy implementation, risk management, monitoring, and control systems, incentive plans and succession planning and is committed to making all necessary adaptations and changes to ensure it establishes best practices in these areas. Sub-prime Losses US$ 18 billion UBS has announced a net loss attributable to shareholders for the full year of CHF 4.384 billion. During 2007, UBS was forced to writedown its US sub-prime holdings by US$ 18 bn. The writedown was far higher than expected and has dented the Group's conservative Swiss reputation. According to its Finance Director, Marco Suter, the sub-prime losses were incurred in a few trading books which even in the past were only marginal revenue contributors. Full details were provided on 14 February 2008 when its final full year results were published. Recapitalisation At the request of UBS, the Government of Singapore Investment Corporation and an undisclosed Middle Eastern investor have agreed to buy CHF 13 billion (US$11.5 billion) of UBS mandatory convertible notes with a 9% coupon. The notes will eventually convert into approximately a 10% stake in UBS, depending on the conversion ratio used at maturity. The action was taken to strengthen its capital position. The recapitalisation will be voted on at a special shareholder's meeting in February. The Swiss National Bank has supported the recapitalisation but many individual and institutional shareholders believe the solution disadvantages current shareholders. A number of other financial institutions have approached sovereign funds for investment but most have allowed current shareholders the opportunity to invest on the same or similar terms. At the February EGM, shareholders will also be asked to approve the creation additional authorized capital to allow for the replacement of the cash dividend with a stock dividend for the current year. The Board has already approved the rededication for sale of 36.4 million Treasury Shares previously intended for cancellation. Management Changes Following on from the ealier statements on losses in the sub-prime market, UBS in October 2007 announced management changes and the loss of 1500 jobs. Mr Ospel, the UBS Chairman, had already removed Peter Wuffli, the chief executive officer. Others, including,the chief executive of the investment banking division, the group chief financial officer and the head of the fixed income business have also left. The group chief risk officer has been transferred to another role. But after UBS announced at the end of January 2008 that the total losses from the meltdown in the US sub-prime mortgage market have reached US$ 18 billion, many believe that the changes are not sufficient and that Ospel should also leave or at least announce his retirement date. If this were to happen, many believe that UBS will have a greater chance of obtaining the requested approvals to the resolutions to be put at the EGM in February. Risk Management In their letter to shareholders, included in the 2006 Annual Report, the UBS Chairman and the then current CEO, highlighted the banks approach to risk management and also their short term concern for the markets. Extract from-
Fourth Quarter 2006 Report
13 February 2007
Letter to shareholders
Our approach to risk has been critical to our current growth. UBS's average risk-weighted assets are today at a similar level to 1998, just after the UBS-SBC merger, although our underlying risk profile is very different. We are now a more integrated firm - our business model has evolved, and the way we view, manage and control our risks has changed.
The primary focus in our risk-taking activities is to ensure the adequate diversification of risk in order to avoid illiquid and concentrated positions, and to ensure that we are rewarded for the risks we take.
We have transferred resources from businesses in illiquid markets into more liquid ones, and have actively pursued risk distribution strategies. Portfolios with poor returns on risk have been cut back and the quality of other portfolios has been enhanced…….
Outlook……… In the short term, as the economic cycle matures, investors might become more sensitive to any disappointing political or economic developments, so our top-class risk control remains paramount.
With such an apparent focus on risk management and concern regarding a possible market downturn in the short term, how could things go so wrong (US$ 37 bn) in such a short period?
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